The pre-tax cost of debt for a new issue of debt is determined by

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The pre-tax cost of debt for a new issue of debt is determined by the yield to maturity of outstanding bonds. This is because the yield to maturity represents the total return an investor would receive if they held the bond until maturity, and it takes into account the coupon rate, the price of the bond, and the time until maturity. The investor's required rate of return on issued stock and the coupon rate of existing debt may be helpful in determining the yield to maturity, but they do not directly determine the pre-tax cost of debt for a new issue.

The Pre-Tax Cost of Debt for a New Issue of Debt